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A CEO's perspective: the role of the CFO.

I used to think that running a company's financial operations was easy. At the end of the day, the CFO counted the beans. The, once every quarter, he added them all up and made a report to the CEO. But, as I moved through layers of management, I was amazed at how much CFOs really know about the way a company ticks. Today, a CFO of a modern, complex, and fast-growing company has one of the toughest--and often least appreciated--jobs around.

No longer can an individual qualify as a CFO simply by having worked for a major public accounting firm. The person must have broad-based accounting and cost control skills, be expert at the treasury function and at sourcing for money, and have superior management skills and the ability to be responsive in a crisis situation.

I'm part of a complex organization. Terminix International is a firm within the ServiceMaster Company limited partnership, which is divided into two operating companies, one of which is the ServiceMaster Consumer Services Group. While I'm CEO of Terminix, I'm also CEO of the ServiceMaster Consumer Services Group.

The five units of the Consumer Services Group, of which Terminix is one, have combined customer-level revenues of approximately $1.1 billion. That level of complexity means we need someone in the CFO position who can build a financial information system that can deliver accurate numbers on the spot, recruit the best cost accountants and division controllers, and instill a company-wide culture that brings financial literacy to all major departments and to our operating leaders.

The CFO's agenda

I consider the CFO the "designated driver" in any company. He or she must be reliable and trustworthy. The CFO may not be the hero or the visionary, but he or she must be credible. Here's what I expect of a good CFO:

* Make the company's operating managers financially literate. The CFO needs to help the operating managers understand how what they do affects the company's profit-and-loss statement. This is the CFO's most significant role. The operating managers, under the tutelage of teh CFO, should be able to make decisions at the point of action and not have to wait for the financial report.

This isn't easy. It's a process that requires the CFO to first develop credibility with the operating managers and with everyone else with whom he or she associates. To do this, the CFO must understand what makes the operating people function. Once that rapport is established, a CFO can teach the operating managers not only how to read a financial statement but how to write one!

* Establish credibility with the investment community. Security analysts live in fear of being embarrassed. So a CFO must continually communicate with those who follow his or her company to make certain the analysts understand any moves the company makes. In that way, the analysts look good when they recommend the stock.

* Ensure compliance with regulatory standards. The reporting requirements of the ServiceMaster Company master limited partnership, with more than 46,000 limited partners, are tremendous. Our CFO, like that of any other company, is responsible for making sure the company adheres to the financial reporting standards of the SEC, the FASB, and any other relevant regulatory agency.

* Recognize opportune times to secure substantial financing commitments, even though the company may not need sources of financing at the time the commitments are made. In this way, a company has the necessary resources when it gets the opportunity to make an important acquisition or retire more expensive debt.

Along these lines, a practice unique to ServiceMaster is that our CFO is responsible for setting up the necessary financing requirements used by our franchise selling organization. He or she is directly responsible for setting up, managing, and directing the operation of ServiceMaster Acceptance Corporation.

* Perform operational analysis. This should be an ongoing function of the CFO and his or her staff. They should analyze everything, from sophisticated financial issues to the aging of accounts receivable, from the pricing of various company services by market to the economy in general.

* Identify new business opportunities, including good acquisition candidates. The CFO has a strategic role, too. He or she needs to evaluate the compatibility of any acquisition candidate with the company's mission and culture, performing the necessary financial analysis. When ServiceMaster recently acquired the pest control and lawn care operations of Waste Management Corporation, the success of the project was in great part due to the negotiating skills of our CFO and his counterpart at Waste Management. The two would not allow the turf-protecting and zero-sum negotiating tendencies of many operating people to get in the way of a fair deal.

* Know the company and its operations. The CFO needs to understand the corporate goals. It's easy to find a good technician, but hard to find someone with a good working knowledge of the business.

When we consider an acquisition at ServiceMaster, we want consistently solid financial characteristics: low capital requirements, a high return on investment, and a high return on equity. Very simply, if we invest six cents, we want to generate a dollar's worth of sales and six cents in cash flow. And that doesn't just happen. The process requires an understanding of our operations and a very thorough screening, which is the responsibility of the CFO. He or she must make certain that the protocol of the process isn't violated.

Also, at ServiceMaster, our MIS group reports directly to the CFO. So the CFO needs to be very cognizant of what it takes to support emerging technology. He or she directs the development of systems that help us run the organization.

* Be a good teacher and a good communicator.

The help-wanted ads?

How does a company recruit such talent for its CFO position? ServiceMaster has been known to approach the major accounting firms for the type of person we think is necessary in the chief financial slot. We actually have a profile of the individual, developed over the years, that identifies the kind of person who works well within our organization. We consider not only an applicant's technical knowledge, but other personal attributes. To us, a CFO must be someone who ultimately can be considered a "field" person yet who has the financial knowledge to support operations.

This article is adapted from a speech Mr. Cantu delivered to FEI's Memphis Chapter.
COPYRIGHT 1991 Financial Executives International
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:chief executive officer, chief financial officer
Author:Cantu, Carlos
Publication:Financial Executive
Date:Jul 1, 1991
Words:1060
Previous Article:The strategic potential of information technology.
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